El-Erian To Gross "I'm Tired Of Cleaning Up Your Shit"

Bill Gross, by his own admission, is a demanding boss; but as the WSJ reports, one day last June (amid the bond sell-off), things went a little turbo (leading to Mohamed El-Erian's recent resignation):

Gross: "I have a 41-year track record of investing excellence... What do you have?"

El-Erian: "I'm tired of cleaning up your shit."

While careful to deny that El-Erian's departure had anything to do with 'friction' although even Mr.Gross admits he can be difficult to work with,"sometimes people will say 'Gross is too challenging,' and maybe so. I would say if you think I'm challenging now, you should have seen me 20 years ago."

Funny what happens when a 30 year bull market for bonds starts to stall out..

Tension increased at Pacific Investment Management Co.'s headquarters here last summer. The bond market was under pressure, losses grew and clients pulled billions of dollars from the firm.

Last summer, bonds came under pressure because investors were worried the Federal Reserve would reduce its bond purchases. In June, investors withdrew $9.6 billion from Mr. Gross's fund. "Don't jump ship now," Mr. Gross wrote clients that month.

But more investors cashed out, adding to the stress. Disagreements between Mr. Gross and Mr. El-Erian became common over trading strategy, personnel decisions, new products and more, employees say.

Some of Mr. Gross's decisions struck some employees as unusual. Last summer, during a rough time in the market, Mr. Gross limited the firm's trading, restricting it mostly to sales aimed at raising cash to meet client withdrawals, according to three Pimco employees. Some employees complained to Mr. Gross and Mr. El-Erian that they couldn't buy inexpensive investments and that Mr. Gross didn't seem to trust their abilities. Mr. Gross didn't budge. He had restricted trading during rough patches before. These restrictions were longer, lasting for several weeks, according to the three employees.

A Pimco spokesman said the firm's investment committee told employees to limit "nonessential" trading—as it sometimes does during market stress—and that overall trading volume didn't decline during those weeks.

Bill Gross, who co-founded Pimco in 1971 and is largely responsible for building it into a behemoth overseeing almost $2 trillion in assets, struck some of his colleagues as testier than usual. He argued openly with Mohamed El-Erian, Pimco's chief executive—something employees say they rarely had seen.

...

"I have a 41-year track record of investing excellence," Mr. Gross told Mr. El-Erian, according to the two witnesses. "What do you have?"

"I'm tired of cleaning up your shit," Mr. El-Erian responded, referring to conduct by Mr. Gross that he felt was hurting Pimco, these two people recall.

In an earlier interview with The Wall Street Journal in January, Mr. Gross denied tension with Mr. El-Erian was a factor in his departure. "It had nothing to do with friction," he said, although he acknowledged he can be difficult to work with. "Sometimes people will say 'Gross is too challenging,' and maybe so. I would say if you think I'm challenging now, you should have seen me 20 years ago."

Interviews with nearly two dozen individuals close to both men and to the firm suggest more-important factors in the departure: a high-pressure work environment that turned less collegial over the past year, a deteriorating relationship between the two senior executives and certain decisions by Mr. Gross that confused some employees.

The environment is 'different'...

Most Pimco investment professionals arrive at the office around 4:30 a.m.—well before trading opens on Wall Street—and stay until 5 p.m. or later. The firm encourages internal competition, current and former employees say.

On the trading floor, Mr. Gross doesn't like employees speaking with him or making eye contact, especially in the morning, current and former employees say.

He prefers silence and at times reprimands those who break it, even if they're discussing investments, these people say.

But to the future...

Mr. Gross said in a recent interview that he would be stepping back from some investment duties, but others at the firm are skeptical he will give up any control.

Since the announcement, Mr. Gross has expressed disappointment and bewilderment over Mr. El-Erian's departure, telling colleagues that Mr. El-Erian was offered whatever he wanted to entice him to stay.

Earlier this month, the firm began removing Mr. El-Erian's pictures from Pimco's walls and placing copies of a book he wrote in boxes for storage. They also moved Mr. El-Erian's office to a building far from Pimco's trading floor.